The Total Money Makeover: My Journey Through Ramsey’s Baby Steps

I first discovered Dave Ramsey on The School of Greatness podcast, where he was discussing how to create financial freedom and become your own boss, topics I have high interest in and am actively trying to achieve. I’ll be honest, I don’t remember any specifics from that podcast, but I liked Ramsey. His attitude and personality resonated, and that’s what left an impression. That, and he was promoting a new book, Build a Business You Love: Mastering the Five Stages of Business, so I thought I would pick it up. Well, I couldn’t get that specific book through Libby, and I don’t think I had any credits left on Audible, so I looked for any book from Dave Ramsey. This is how I stumbled upon The Total Money Makeover, a quick four-hour listen, so I thought I would give it a try.

Dave Ramsey is a no-nonsense finance guru, full of Tennessee home country wisdom. I would classify The Total Money Makeover as a beginner’s finance book. Ramsey lays out seven “baby steps” that anyone can take to achieve financial control. He emphasizes that it will take a long time to gain control and that this is not a get-rich-quick scheme, but by following these baby steps, one will be able to “live like no one else.”

Ramsey’s main thesis in this book is that most financial issues stem from emotional and behavioral habits, viewing debt as the primary enemy. He claims his seven baby steps are a proven roadmap that works to build wealth:

• Save $1,000 emergency fund
• Pay off all debt using the debt snowball
• Save 3–6 months of expenses
• Invest 15% into retirement
• Save for kids’ college
• Pay off the house early
• Build wealth and give generously

I feel like saving a $1,000 emergency fund is solid grounding advice. It keeps you from going into more debt when the unexpected happens. Ramsey says to keep it liquid and accessible, and with today’s high-yield savings accounts, it’s possible to get a good return on it too. For me, this box is checked, and looking back, I realize I would have greatly benefited from this advice earlier in life. There was a period where I didn’t use credit cards for normal transactions, relying on them only for emergencies. But as I gained more financial education and responsibility, I realized I was leaving money on the table by not using credit cards if I could pay them off in full every month. Instead of relying on a credit card as a backup, I should have had a $1,000 emergency fund.

Baby step 2 is paying off all debt using the debt snowball. This includes all debt not factoring your home mortgage. Ramsey wants you to attack your debt from smallest to largest, paying off the minimum for all debt except the smallest. Once the first debt is paid off, you roll that payment into the next smallest debt, and so on, until you are debt-free. Ramsey’s reasoning behind this structure is the psychological win of being able to pay off the smallest first, giving you incentive to keep going. I believe it was Codie Sanchez that talked about the debt avalanche, where you structure paying off the highest interest rate first because that will actually save you the most money in the long term. I like that idea better than the snowball; whatever would lead you to paying less over the time of paying off your debt is the best strategy to me. A point Ramsey makes at this step is if there is an emergency, use the $1K from step 1 and go back to step 1. Always have that thousand dollars before proceeding. For my situation, I only have one car loan that I’m paying off right now, with exactly one year left of payments. Doing the math, I would save $280 if I paid it off right now. Is it worth it? I have no idea. I would love to be out of debt and use that money to buy assets. My dilemma is, if I attack the debt now with money I could be saving in an asset, wouldn’t I lose in the long term? 

This leads me into the biggest problem I have with Ramsey’s Total Money Makeover: his approach to debt. I agree that most debt is bad, maybe 95% of all types of debt are bad, but debt can be good. Especially low-interest debt that can be used to purchase or build things that generate more value, like a business, or (if you are really technically fancy) leverage on buying an asset that will go up in the future (not financial advice!). Debt can be good. Even though it’s my biggest problem with the book, it’s not a huge deal. The target audience for this book is not the “financially sophisticated” or those who aspire to become experts.

Baby step three is to save 3-6 months of expenses for emergencies. I really have fallen down on this one. I put money aside, but I am constantly using it for things other than emergencies. I am committing here to achieve this goal, getting to three months as fast as possible, then growing it to six months, and even a year. And only using it for emergencies.

Step 4 is to invest 15% into retirement. I achieve this by maxing out my 401k, so I don’t have to worry here. But the number I have always strived for is to save 20% of my income. I don’t remember where I learned this formula, but at 20%, I should retire rich and early. So that is what I strive for outside of just my retirement.

Saving for kids’ college (step 5) is a tricky one for me. I have three kids, and I am very uncertain of their college ambitions. Also, with the rate of disruption from AI and the incredible rising cost of education, I am not sure what the state of play will even be when they go to college in more than a decade. I hesitate to invest in anything that is college-specific and am opting for a more neutral index fund investment. I guess I should really look into 529 savings plans more.

Step 6 is to pay off the house early. For a person with a locked-in super low mortgage rate, I question this strategy. Why would I prioritize paying off low-interest debt when I could potentially earn more by investing that money? I would like to purchase investment properties in the future, and I would consider that advice there. However, with the current price of housing and the fact that, historically, equities tend to increase in value faster than real estate, I am not sure when I should prioritize that.

Ramsey’s last step is to build wealth and give generously, which I am 100% onboard with. I have fully bought into Jen Sincero’s thesis she outlines in You Are a Badass at Making Money and believe money is energy that should flow through your life. Giving will reward you in more ways than you can count. Let that energy flow through you into something good. Give a good cause life, and you will be rewarded in return. Money is meant to do good things. I earn money easily, and money flows to me freely.

As I said in the beginning, I wish younger Clay had read this book. It would have given his financial life direction and a roadmap that he could have used to build wealth faster. Instead, I mainly had to learn my lessons the hard way. Not the absolute hardest way, perhaps, but I certainly could have avoided some pain.

Do you have a wealth-building plan? Let me know in the comments below!